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- [00:00]
Scott Arnoldy
I don't know that I've ever seen the rent versus own disparity this wide. Like, remember. Well, at least when I was at Stockbridge, you'd always be doing this analysis on like how much the shelter rent was compared to owning because you know that they would empty the apartments and go buy.
- [00:15]
Co-host or Interviewer
Well, it's like TLDR, it's better to rent.
- [00:18]
Scott Arnoldy
Yeah. But now it's 40% better to rent.
- [00:20]
Co-host or Interviewer
Yeah.
- [00:21]
Scott Arnoldy
And which by the way means you need 25, 30% rent growth to build. And so it's like on one hand you could say that's a big bull case for acquisitions and rent growth. But then it's like, well, how do you have rent growth if things feel soft? I still think in my mind it's a good time to be in a hard asset class. That's the other thing I always say is like, well, I'm glad I don't have too much debt and not a hard asset because at least if there is an inflationary pressure either because of lack of supply or tariffs, then I feel good about being in real estate. And so it's like to me, there's like the decision tree. I still anchor like, okay. I still think it's a great asset class for this environment, just finding the good picks throughout it. We should have just done data centers at the end of the day.
- [01:17]
Podcast Host or Narrator
Today's episode is awesome. It's with my friend Scott Arnoldy, who's building one of the coolest real estate platforms in Texas across multiple asset classes. They're big in iOS, they're big in multifamily, they're big in industrial, they're doing opportunity zone deals. And we've shared a lot of notes over the years on how he's building his platform, how we had built our platform at Fort and he's really someone I respect and hold in high regard. We talk a lot about how he did high leverage deals in the 2000s with Goldman and Stockbridge and how that kind of shaped his risk mindset. The transition from opportunistic projects to focusing on building a long term business with structure and focus, the evolution of their investment approach from value add office to iOS and multifamily perspectives on the current real estate cycle, market uncertainty and where compelling opportunities exist today and why storytelling and clarity matter as much as numbers when raising capital. They've done over $2 billion across different asset classes. And speaking of storytelling, I think it's important that you know about collateral.com because that's exactly what they do. They help businesses that are looking to raise capital tell their story. From a single investment decks to complete brand overhauls, ongoing partnership support to market research, they deliver institutional grade work that actually moves capital. Think of them as the difference between looking like a startup and operating like an institution. They're really your entire institutional marketing department. The team you wish you had in house but just can't justify hiring ex Goldman directors, XP Associates who help craft your narrative, and world class designers who make it all effortless. Check out what they did for us at fort@collateral.com and mention the Powers podcast and they'll do a free complimentary one pager. I hope you enjoy the episode. Managing 35 properties used to mean managing 35 debit cards, piles of gas receipts and endless transactions. If you're in the real estate business, or really any business that manages multiple entities, you know what I'm talking about. That was us until we found Ramp. Chasing receipts, logging expenses and untangling transactions was low leverage work that held us back. Onboarding with Ramp changed everything. Now our purchases are automatically categorized, our receipts are matched, our approvals are streamlined and our expenses sink into our accounting software.
- [03:48]
Co-host or Interviewer
No manual work needed.
- [03:49]
Podcast Host or Narrator
My CFO said it feels like we hired a full time expense manager. Over 30,000 businesses, including CBRE, the world's largest real estate company, trust Ramp to optimize their operations. As soon as we heard CBRE loves Ramp, we signed and it was a game changer. We haven't looked back since Events Ramp provided us with White Glove onboarding support and for listeners of the fort, they're offering the same. Sign up within the next 30 days.
- [04:14]
Co-host or Interviewer
And you'll get a dedicated team to.
- [04:16]
Podcast Host or Narrator
Ensure a fast and seamless setup. Go to ramp.com fort that's R A M p.com fort save time, simplify expenses and take your business to the next level. Cards issued by Sutton Bank, a member of the fdic.
- [04:33]
Co-host or Interviewer
Terms and conditions apply.
- [04:36]
Podcast Host or Narrator
If you want to know about Scott, go read his bio.
- [04:38]
Co-host or Interviewer
But I think it's important that we start at Goldman. So you get out of TCU and you join the frothiest market maybe ever. In real estate.
- [04:47]
Scott Arnoldy
Yeah. Or at least the very start of it.
- [04:48]
Podcast Host or Narrator
What year?
- [04:49]
Scott Arnoldy
05. So I graduated TCU in 05 and had zero real estate experience. Zero real estate focus. So we just were talking about the Real Estate Center. I didn't even take a real estate class. I thought I was going to go to finance, didn't I? Knew I didn't want to move home. I moved to Dallas, ended up working for Goldman. That was Like I was interviewing at Accenture, I mean I was interviewing at Lockheed, it was interviewing at investment banking and then end up getting a job mid tier. And the only reason by the way, was they needed more analysts because of the market starting to ramp up. So I get the job in December of 05. I had moved to Dallas blind. And yeah, I was like December of 05. So by late 06 the market is just ripping. And that was the day. So our group at Archon was what it was called the subsidiary of Goldman Sachs. And we did all of the financings for all of Goldman nationally. And at the time, I don't know if you remember the Whitehall funds, which was essentially akin to a Blackstone today, which is crazy that it's just not as prevalent as a name in the industry. But remember GE was big back back then. There's a whole slew of names that kind of got washed out in that cycle. But we did all of the financings for all of the Whitehall funds. And so in 06 that became all securitization financing. So like what's the movie with the big short? Big short. It was literally that. But not rmbs. It was cmbs. And so we were working with Lehman and Credit Suisse and Morgan Stanley and we'd call their securitization desk and say how much financing could we get on all these different types of properties? And then it was literally like they said they would take the A note and then they'd go sell the mez. And so I got like just this front row seat. But then I remember Even as a 20, whatever it is, 23 year old, we did a financing in April of 07. It was part of the whole Blackstone EOP spinoff. And it was a billion dollar 1.2 billion acquisition. And we got 900 and or no, it was 92% financing. So 1.07 billion or something like that, dollars of financing. And then we put a letter of credit down to bite on our equity. I remember we closed it with like 90 million of equity. And I was like, that doesn't seem right. That just seems very risky. But it was a fun period. I mean an unbelievable training ground. You got to learn a lot about the different components of the business. Worked a lot with a great number of talent in New York who were at with the Whitehall funds in New York. That's where I started my career and cut my teeth and then went west coast.
- [07:45]
Co-host or Interviewer
Did you know while obviously you're green, you're young, did you just think this is how the World works or did you kind of know that you were in a different run up? That's. It's not usually like this.
- [07:56]
Scott Arnoldy
No, I remember early on it was like, wow, this is the best industry ever. You know, we were going to ICSE in Vegas and it's a very, I mean still to this day I feel like we're the most social, relationship oriented industry.
- [08:10]
Co-host or Interviewer
Yeah.
- [08:12]
Scott Arnoldy
And so I was like, wow, this is just unbelievable. You just meet all these great people, you take great trips and it was kind of high flying. But then I don't know why, but that, that one transaction stuck out. I remember a week closed and I just said that seems like everything I learned in school and the books you read, Be Wary of Debt and Structured Finance. And that was April of 07. People always talk about Lehman going bankrupt. I remember in the spring of 07 the first subprime lenders were going not under. But what was the code? It wasn't SunTrust. There was one of the other Countrywide. No, it was before that. It was literally in May of 07. I think you had some cracks in the subprime lending and then we couldn't, by the way, the deal that we had just closed for that 92% financing, we couldn't move the paper or, sorry, they Credit Suisse or Mortgage, I can't remember which, they couldn't move the paper. So you could see the financing market starting to choke up, if you will. And that's what I remember being like. And I left for Stockbridge in early 08. So I just remember in 07 it felt a little shaky, but it took, I always tell our younger guys now, it took a while for it to hit hit because I feel like it reminded me of oil and gas in 16 and 17 where people were like, oh no, no, no, it'll come back, it'll come back. And there's this denial period. And then you suddenly see the market accept it or you had. That's when Lehman happened. I think the market just kind of panicked at that point.
- [09:44]
Co-host or Interviewer
Any idea whatever happened to that billion dollar deal?
- [09:46]
Scott Arnoldy
Yeah, I mean it all. A lot of the went back to the, you know, there was, let's say of the billion dollars of financing, there was like, I don't know, 400 million of an A note and then a bunch of mez holders and someone in the mez stack ended up taking it over. It was a bunch of Seattle office buildings.
- [10:04]
Co-host or Interviewer
And basically the game is like, how can we get the most for the cheapest down and get out of this thing? As quickly as possible. Like it's the thesis when you're putting that much leverage on something, something, or recapitalize it at some much larger valuation with cheap permanent financing.
- [10:19]
Scott Arnoldy
Yeah, and I remember back then, it reminds me we had always 5. Remember Libor would have been at 5 and a half, so debt was 6 or 7%. And so all of our models had 5, 7, 7% rent growth, something like that. And then we entered that period of a decade of 2 to 3% rent growth. And if you underwrote anything more than that, you were crazy. So I feel like, yeah, the plan was always. It was much more like structured finance. I mean Blackstone even then, that was one of their hallmark deals. They flipped out of a bunch of that portfolio on the closing table. Looking back, I'd say there were certainly elements that maybe I said this seems a little off, but I'd say there was probably more waiting to be like, this industry is crazy, this is fun, what have you.
- [11:10]
Co-host or Interviewer
So is the lesson learned as soon as you start thinking this is the greatest industry that ever lived? There's probably something underpinning that.
- [11:18]
Scott Arnoldy
Yeah. I mean, think about 2020's awesome.22, by the way. I mean that was the only time it felt similar was to me, 22. And it was interesting being an owner, but it felt so high flying and I feel like I'm a very fast paced, urgent person. But that felt almost too frenetic for me to even. You'd try to price a development budget and then next month it would go up and then you had brokers flipping out of contracts and all these things where that was the last time, I think in spring of 22 when I said something's got to happen because it can't go on like this. It just seemed too exuberant.
- [11:59]
Co-host or Interviewer
So you said you started seeing cracks when some of the subprime lenders were going under. Oh, you also said one thing. You said they can't move paper. If you can't move paper, that just means you end up having to hold it on your balance sheet. Right. Or does that mean you just have to sell it for cheaper and you have to find a clearing price?
- [12:17]
Scott Arnoldy
Yeah, either. I mean, like, so what were they doing? Credit Suisse back then when they were getting aggressive, they would warehouse it. Right? So Credit Suisse would give a billion dollars and maybe historically they'd say, look, we'll hold 300 million, that will warehouse to go securitize and then the rest of it, we want hedge funds to buy the mez debt or the B note, the C note, the D note, the E note. And when it got frothy, they said, you know what? We'll warehouse the whole thing, and then we'll securitize the end. So at that point, they were holding a bunch of tranches of mes, and there was no buyers. And so I remember they called and said, you got to help. I was like, what do you want us to do? And so it became a unique situation to say at least.
- [13:03]
Co-host or Interviewer
All right, so GFC hits. Did you get to Stockbridge before the GFC or after the GFC?
- [13:10]
Scott Arnoldy
I joined Stockbridge in early 08. So, yeah, so you certainly can't say I knew that much because I wouldn't have just left and gotten a new job on the west coast if I thought I knew something was coming. But, yeah, I remember. Same deal. I remember our pipeline calls. When we first joined was like. When I first joined, it was an Opportunity Zone, or not Opportunity Zone, an opportunity Fund, opportunistic fund. And it was still like trying to look at all the things that were popular back then. Vegas hotel. We were looking at pet resorts, housing land. And then nothing was kind of really penciling. And then it got bad, and then it was real bad over the summer. And then Lehman. Lehman was what, September, I think. Yeah, I think September of 08. So, yeah, then the music stopped hard at that point.
- [14:00]
Co-host or Interviewer
What'd you do at Stockbridge? Just do workouts?
- [14:03]
Scott Arnoldy
So we had. At Stockbridge, we had a series of opportunistic or. Yeah, opportunistic funds. I think they're on fund three. When I joined, and it was a small team, but they had a very ambitious growth plan. They'd hired nine senior partners from Deutsche Bank. And so there was this big growth plan to raise core plus capital and core capital. But when the music stopped, we were like, all right, we got to get work. And our opportunistic holdings, there was some workout stuff, and we just kind of worked through it. But then I got pulled into a. There was a workout account with a. I'll just say large national pension system where they had given a whole host of capital to funds and separate accounts. And so we were asked, because one of our partners had worked with this pension fund before, to come in and advise. Because back then, if you remember, everyone needed to pay down debt.
- [15:04]
Co-host or Interviewer
That's right.
- [15:05]
Scott Arnoldy
And so all these funds and advisors were calling capital, and it was like, are we throwing good money after bad? And so one of them culminated in us taking the account on. I mean, imagine this. It's like you have an institutional partner. And it'd be like if I'm an operator now you have an institutional partner and you get a call from someone and say, by the way, that guy that you thought you did the deal with is no longer involved and I'm now your partner. And that's what an MD at Stockbridge and myself had to do. We had to call and there were some bigger names were related, Forest City. And we called and said, by the way, we're your new contact information. We're your new partner. And so that was post 08. And there was not a single piece of good news that came in any one of those 22. I think four or five were land, four or five were condos. There were some bigger, sexier assets in there too. But it was maybe one of the most interesting in a way fun because maybe I didn't have a skin in the game. And then it was like a PhD. I tell people of joint ventures and.
- [16:28]
Co-host or Interviewer
Partners, is there a through line through those 22 deals that are patterns that you kind of saw through each of them. Whether it was obviously bad pricing, bad timing, but certain incentives that were in play that you didn't think or no.
- [16:45]
Scott Arnoldy
I mean, honestly, the biggest take. It was fascinating to watch 22 different partners react in every way human nature could conceive. Some were really bad, nefarious. Some were like, doesn't matter what the doc says, let's do the right thing. Right.
- [17:05]
Co-host or Interviewer
And I remember, does that actually play out in theory? If the doc says something, can you just do the right thing? Not you, but I'm saying like the support system lets you do the right thing or like, oh yeah.
- [17:17]
Scott Arnoldy
I mean, I think you could, you could amend the JV to allow whatever you would come up with.
- [17:21]
Co-host or Interviewer
Got it.
- [17:22]
Scott Arnoldy
But there was, I think of the 22. Two maybe ended in lawsuits where we just had to fight it out. A lot of them were kind of ending in some form of you buyer interest back. But it was just a fascinating. I remember the mentor at the time that I was working with on the account, which is now one of our board members said, you can't do a good deal with a bad partner. I'm sure you've heard this term, but you can't have a good deal with a bad partner and you can't have a bad deal with a good partner because when things go bad, you're just going to dig in and figure it out. And it's like the only thing you know when you do the model is that it's wrong. So know that things are going to go different, and you better get in there and figure it out together and, you know, do it with the best intent. But, yeah, that was. That was a fascinating account to work on.
- [18:13]
Co-host or Interviewer
All right, one more story from those days.
- [18:16]
Scott Arnoldy
We.
- [18:17]
Co-host or Interviewer
We bought $120 million worth of air rights. Total loss. What are air rights?
- [18:25]
Scott Arnoldy
Yeah. So that same account we went in on, our mandate was to try and mitigate losses, return as much capital as possible, and keep their name out of the press. And so we had a board that we would keep because we were digging in and figuring it out ourselves, getting the accounting books, and let's dig in. And one of them was an air rights deal, and I believe it was Boston, and it was to go over a freeway. And so they had spent literally $120 million on entitlement and engineering and architectural plans to get the rights to build over a freeway. And essentially, it'd be like kind of imagine creating a tunnel or a Clyde Warren park type situation. And of course, when 08 hits, it's like, city, we're done. None of the math works anymore. And you're like, they spent $128 million. I remember. And so that was the. We're like, there's no way you're going to top that.
- [19:28]
Co-host or Interviewer
All right, let's kind of move into. When did you decide that you wanted to start your own firm? Was it like you had felt comfortable enough, that you had enough experience? Was it an opportunity? Did you want to get back to Houston? Was it all the above?
- [19:46]
Scott Arnoldy
Well, I guess the slightly nuanced answer, because I actually ask myself. I mean, I'd ask you, but you were an entrepreneur from the get go, right?
- [19:56]
Co-host or Interviewer
Yeah, by accident. Honestly, it's kind of weird. I always thought I would go work on Wall street when I graduated, but I owned houses. I had a management company, a leasing company. I really wasn't thinking too much. I just thought, well, once I leave, I'll sell all the rental houses off and whatever, and I'm just gonna go work on Wall street because they make the most money. And it's investment banking because you had.
- [20:18]
Scott Arnoldy
Rental houses in college.
- [20:19]
Co-host or Interviewer
Yeah.
- [20:19]
Scott Arnoldy
Okay. And.
- [20:21]
Co-host or Interviewer
But then I graduated in December of 08, so there was no options. And so I just kind of kept grinding it out and hustling it out, and then just kind of got to a point where I was like, this is kind of my career.
- [20:33]
Scott Arnoldy
Like, this is what I do. That's what I do.
- [20:34]
Co-host or Interviewer
Yeah.
- [20:36]
Scott Arnoldy
Did you actually ever go try and interview and get A job I did.
- [20:39]
Co-host or Interviewer
I actually worked for somebody. Let me take a step back. I think people know this about my story. In oh, in 09 I had graduated but still had friends in college. I was flipping houses at the time. So I had kind of bought rentals throughout college, gotten a line of credit and by 09 was buying foreclosures and flipping them in South Fort Worth.
- [21:01]
Podcast Host or Narrator
But like my capacity was like three.
- [21:03]
Co-host or Interviewer
Homes at a time. And if you're waking up at 8, like by the time you've driven all your houses, you're kind of done by noon.
- [21:09]
Scott Arnoldy
Yeah.
- [21:09]
Co-host or Interviewer
Like I started the story with all my friends were in college still. So guess what I was doing from noon to like whatever. So I was like, this is not good for health. You know, I need to build a career. But there was nothing to do. Yeah, you have like no track record. You're on your own little pile of money. And you know, Stream Realty was gracious enough. I went and worked as a tenant rep broker. So I went. My buddy had just gotten a job as a tenant rep broker at stream. This was 09. Basically it was, I was going to do my little job in the morning, run my business and then I was going to do commercial real estate in the afternoon. And I figured this will pass the time. I'll learn a lot about commercial real estate. And didn't really know what was going to happen like four or five months into the job. The Canty townhomes right there by the business center, those three story townhomes, we built those. I get a call that a piece of land had become available right next to the school and had a partner that was willing to develop them with me. And I had never developed anything. And so I went and I put my resignation in four months later, moved back to Fort Worth from Stream, moved back to Fort Worth. We developed those townhomes and then I've never done anything ever since.
- [22:26]
Scott Arnoldy
Yeah. So I always ask myself like, I mean, what was your major?
- [22:30]
Co-host or Interviewer
Finance and marketing.
- [22:31]
Scott Arnoldy
So I was finance and entrepreneurship.
- [22:33]
Co-host or Interviewer
Okay.
- [22:34]
Scott Arnoldy
So that would kind of maybe indicate that perhaps I was interested in entrepreneurship. But having said that, and I ask myself now this, as an employer, you want to keep those types in your business. Intrapreneurship is kind of the buzzword. That's why I'm off. I always say, how would I have kept me. I've never thought about that. How would I have made sure that I didn't leave? Stockbridge is the firm I ultimately ended up leaving. So a little bit was by circumstance. I don't think I ever. So I went to San Francisco and then I went to Chicago, both with Stockbridge.
- [23:13]
Co-host or Interviewer
How long were you at Stockbridge?
- [23:15]
Scott Arnoldy
I was at Stockbridge from 08 to call it through 14. Okay, six or seven years. All right. And they gave me a great opportunity. They made me a vice president when I was younger. And I was kind of a deal guy going into Texas. Right. My old stomping grounds. You know, I joke. I was the only, I think I was the only Texas degree in the company. So I was like, oh, we'll send him to Texas. That was really when Texas, I think, was starting to have. It's like, we need to be in Texas run. You know, all the jobs are. And it was leading the country out of the recession, if you remember that. It's like all the stats and so a lot of the capital wanted to be there, but I don't think I. At that point, I'm like, for one, I'm not moving home, I'm not moving back to Texas. Maybe even I was really loving the urban living, you know, millennial lifestyle, if you will. And I certainly had no intention of leaving. You know, I was like, very happy when I joined Stockbridge. I thought it was a form of entrepreneurship because it was a small private equity group. And I was like, I'm going to be catapulted to the top. Watch this. And so, yeah, I mean, what ended up happening is I started coming home a lot and my dad had inherited seven acres of land from my grandfather, told him he should develop it. We ended up kind of developing it together. I actually went to Stockbridge and said, do you mind if I do this? This was, you know, while I was at Stockbridge. So I developed a little 35,000 square foot building on a seven acre parcel lane my dad had inherited. And ironically enough, by the way, it is technically, if not close, maybe not technically. Maybe it's within a few percent of the fir that you would need to be iOS. So maybe it was all calling at the end of the day. But I did that in 12. And that was kind of the first time I got exposed to development. And I mean, I can't imagine was you building homes, like next to the business that'd be a totally different contracting base, subcontracting base. So yours is probably even more of a trial by fire than mine was. But I was just young. I remember just trying to these OAC meetings and just be effectively yelling at everyone. The architect at gc, it's like, I don't want change orders Because I thought change orders meant I'm over budget. I was like, I don't know, you could work with them. So it's just learning all that stuff. But then when I realized what you can do when you're on the pavement putting the deal together, and then I love the development especially. I just love the fact that you've got all these. It's such a team environment where each engineer has got its specialty and you're the one that's putting the pieces together that has to interpret. But then you got to bring financing. I love the. It almost felt like it's like a little mini company of sorts in and of itself. So I got exposed to it then. And then I was getting probably frustrated for a couple reasons at Stockbridge and. Or I was just starting to get more of my investment gut. And then I think when you start to. I think guys like us, when we think we know it's hard to shake it. To shake it. And. Or when the. When the gray hairs in the room tell you you don't know, it's kind of like, well, I guess I got to go prove it. And so that probably was when that was late 14 to early 15 is kind of when it all went down.
- [26:41]
Co-host or Interviewer
So did you have a plan when you got back, or was it kind of like, I'm going to move back and I'm going to start putting together deals?
- [26:47]
Scott Arnoldy
No. I mean, not only did I not have a plan, I didn't even move back.
- [26:50]
Co-host or Interviewer
Oh, you didn't.
- [26:50]
Scott Arnoldy
I was like, naive enough that I was like, in Chicago, I just met my now wife, Katie, and I literally remember being like, you know, maybe I'll do some stuff in Wesley, Chicago and like Dallas and Houston. And so there was plenty of, you know, ignorance in terms of what it actually took. But that's. I always joke that's what you need to start something, otherwise you'd never do it. You know, it's kind of like the. What was the Nvidia guy that was like, if someone ever told me how hard this would be, I would never do it. And everyone gave him unmitigating shit for. Because they're like, yeah, sure, you're like a gajillionaire now. But there's some truth to that, that when you live the stress of starting a business and having people. And so I did not have a plan. My plan was I had to get a deal done. That was it. And that was the basis of my.
- [27:44]
Co-host or Interviewer
Plan at that point in any asset class.
- [27:46]
Scott Arnoldy
So I was a generalist at stockbridge and these were the days of value at office. Right? There's buy an office building, renovate it, raise rents, sell it. So I'd say when I first left, it was like my shtick was to try and be where the institutions weren't, which maybe is candidly some form of kind of what we do now. At least that's where we try to find value. And there was an office building in Dallas right next to George Bush Library in smu. And it was an office building with I think it was three and a half acres of parking. It was a surface lot. And so it had three and a half million feet of far. So the value add office guys couldn't look at it because they were paying too much for the development rights. The development people, the firms couldn't look at it because they didn't want an office building. And so I was like, this is perfect. And it was. I think it was a $28 million acquisition. And we did that in June of 15. That was our first deal. And then it was literally like I'm sitting in the halls reading leases, abstracting and building my Argos. And it was like, oh, wait, I need a management company. I'm not kidding. It was like, you know, I'm doing the math of like, how am I going to make any money on these fees and pay the bills. And it was like, oh, I need a management. I got to do the property management myself. And then it was always like, that makes sense, because then I got to get closer to the real estate and so literally created a management company for that transaction. That was the first time I got exposed to, you know, managing property management. You know, build a chart of accounts and like the whole grassroots bank accounts and just a lot of all the stuff, you know, starting from scratch.
- [29:44]
Co-host or Interviewer
You don't own that deal anymore.
- [29:46]
Scott Arnoldy
No, that was 15. We sold it in 18. I think there is actually. We ended up doing this big master plan and Gensler came in and there's now. I ended up buying the hotel that was next to it. So the hair on the deal was it was part of this rea.
- [30:04]
Co-host or Interviewer
Yeah.
- [30:05]
Scott Arnoldy
Or the rea, Like a restricted easement agreement where the hotel, I think it's now called the Beeman. And the office building had to kind of be neighborly for lack of a better way to put it, share parking. And then there was some sort of. I think there was a approval Right. On development within reason or something. So anyways, we bought the hotel and then it was like we done really well in the office renovation, raised Rents and then our partner wanted to build the Multi tower. We weren't as big of a fan of that at that time and then just decided to sell it.
- [30:41]
Co-host or Interviewer
Okay. I kind of want to talk about modern day Triton a bit because we've shared lots of notes and talked a lot about this over the years you started acquiring more assets, different asset classes. Anybody can go to your website and look and we'll talk about a few of them. But at what point? And you've done a really good job hiring what I would say probably since the last four, five, six years, seven maybe. I don't know how long. But it's been a huge focus. Pulling industry veterans from all across the. When was like the light bulb moment of like, okay, I'm going to build an A plus team.
- [31:16]
Scott Arnoldy
I mean, great question. So as we were just talking, like I'd say the first half of. So it's been 10 years, right? The 15 is 25. Let's just say first half I'd say was very opportunistic, somewhat reactive, but also looking at the data. I was trained as an allocator or a PE deal person. So that was like my mentality and mindset was good investments. But at the end of the day, as you know, MKT in Houston was an unbelievably complicated project. Adaptive reuse, five industrial buildings. That Dallas project I just mentioned was also. Oh no, you're talking about. No, I mean, yeah, and op zones would. I would include in that camp. Not very scalable. And then I would say sometime in Covid, like probably like 21, maybe it was somewhat overlapped with iOS, but I remember having a distinct moment of like me personally, I either need to be a projects guy, like I'm building projects or I need to be building a business. But like those two are going to be in direct conflict with each other. So I'd say it was probably like four to five years ago. And that's when I'd say the like this last chapter of like process, structure, vision, like plan, you know, like actually have a plan, communicate that plan, you know, regularly, regularly beat the drum, right. Pivot the plan if need be. But like have a plan, communicate. And that's the whole like you and I have talked about it, but like leadership truly in my opinion, like what leadership is and should be. And that's the hardest part is like when you're an entrepreneur, you come up doing and then all of a sudden to turn and lead is such a different muscle to stretch that that's been the hardest Challenge for me, at least the last few years is just honing that, stretching it. And so by far, I think what I'm most proud of, of all of it, of any track record or realized, is when you, to your point, feel that you can recruit talent. And that to me, just like reputation, which is everything, it's kind of brand, which is unintentional sometimes because I don't think we were that conscious perhaps, but it just permeates when you're doing it right. And then when you can sit face to face or even right now, we're like out talking with some capital markets directors, we just put out a opening for it. And I'm like very humbled with the level of talent that is willing to say, hey, I'm interested in that. And I'm like, you know who we are.
- [34:03]
Co-host or Interviewer
You always feel like you have imposter syndrome.
- [34:05]
Scott Arnoldy
Yeah. I'm like, me. And so you have to kind of. Yeah, you just gotta really be grateful for that. Like, that's the most. To me, that's like one of the better accomplishments. I think the next and hardest thing I know you would agree is I think one of the hardest things in business is just to build it a team that can be as good as what you think you can do on your own. Right. And that can kind of put forth the vision. So that's like what I spent the last few years doing. It's like sitting down with our team and even the very first people, when we were five people, I was like, okay, when we thought we were being so reactive, what were we actually doing in our minds? How did we develop a strategy or were we that reactive? And so we've spent a lot of time trying to put that on paper and then communicate it out to the team in a more systematic way. It's hard. It's super hard.
- [35:01]
Co-host or Interviewer
Okay, I want to go through a couple things. So you've built teams in multiple verticals. You've gotten really great at recruiting. I mean, I feel like every time I go on LinkedIn, you've just knocked down another a player. You're not a closed in fund. So you raise on a deal by deal basis. When you have multiple different verticals, everybody's trying to get a deal done in their vertical. So like, how do you, how does investment, how does investment committee work? Or how. Obviously there's times when different asset classes are better than others. So there's times when probably. I know, we'll talk about iOS. Y' all have just been on fire. Y' all have been probably one of the best in Texas and around the country. But like, how does it work? Because when I just did industrial, so I just knew I was showing up each week and I was going to look at the same asset type. But sometimes you're comparing, should we do a multi deal versus an industrial deal versus an iOS deal versus a mixed use deal versus an office deal?
- [36:01]
Scott Arnoldy
Yeah. So kind of when the decision was made, let's build a business, that's when we.
- [36:06]
Co-host or Interviewer
Yeah, I probably skipped over that question. Was it easy for you to come to that conclusion that we're going to build a business, or did you have to think about it for a while?
- [36:14]
Scott Arnoldy
No, it was easy.
- [36:14]
Co-host or Interviewer
Okay.
- [36:15]
Scott Arnoldy
Yeah.
- [36:15]
Co-host or Interviewer
Because it was basically like, I want scale and I want to grow.
- [36:18]
Scott Arnoldy
I mean, it almost seemed like I was doing my business a disservice by being both. Like I was wearing originator, like opportunistic deal sourcing hat and then also trying to be a CEO. And maybe it's said differently, I had to pick am I going to be a CEO or sourcing opportunistic opportunities. And that's when I said, okay, I got to be a CEO at that moment. Then it's like, okay, how do you do this effectively? And as everyone, it's like anyone will ever tell an entrepreneur is focused on and like, what does an entrepreneur do? They never do that. They never focus.
- [36:54]
Co-host or Interviewer
Hardest thing to do.
- [36:55]
Scott Arnoldy
It's the hardest any entrepreneur, like, they just love to chase us. Like we call it chasing squirrels. One of our CDO actually came up with that term is like new idea. And then you go, so now one of my biggest things like I push myself on is like, don't get distracted by that little shiny object over there, that squirrel that's trying to get you to run chase it. So with that has become like, okay, we're going to do industrial and multifamily. Right. And so our mixed use side of the business.
- [37:23]
Co-host or Interviewer
Sheds and beds.
- [37:24]
Scott Arnoldy
Sheds and beds. I mean, by the way, real original. I think like 90% of operators are probably now all saying sheds and beds. But we at least had the base of business that we were in that kind of forced us there. And so we were, you know, building two multi projects within our Opportunity Zone fund. So that's the only fund we we have. And so at that point I was like, all right, we need to bring in a multifamily expert. And so Carter on our team is now the multi, like the head of Triton Residential. It's much smaller than the industrial business. And then the industrial Business has got what I would call industrial specialist. And I feel like sometimes we're more known for iOS than anything else, which is natural. But at the same time, we found iOS by being really ingrained in industrial. And we were doing the same thing we always do, which is just making sure we're buying right. And internally, we call it buying relative value. Like, where's the relative value in that industrial spectrum? Within the team, you've got very much industrial investment team. We call it, not jokingly, the diva team because it's development and acquisitions, but I think the rest of operations, but I'll just call them divas. And then we've got multifamily. That's, you know, two guys. And so it's a team of 10 total. And we have an investment committee. I mean, really, at the end of the day, I'm the one that's gatekeeping or being CIO for. For opportunities that are coming in through pipeline. But to your point, we have a deal by deal structure. We do have a programmatic relationship on the iOS side with Angelo. With Angelo Gordon, or I guess TPG Angelo Gordon now, and everything else. You know my theory. When I first left Stockbridge, I remember it was like, everyone that left was like, I'm going to raise a fund. And I remember, like, maybe it's just the most obvious thing in the world. Like, don't go to the most crowded space. Like, most crowded rooms are going to be hard. Yep. No different than when you're trying to find good investments. You know, like, I was listening to some Brookfield podcast and, like, when institutions go out, you should go in. Well, of course, the irony is it's very hard to raise capital when that happens. But you do your best. I mean, we actually did a form of that in 23, where we bought Class A industrial. But investment committee is there, I'd say, for sure. We want to lean and leverage the talent that you alluded to. So I want to hear from everybody. What do you think? What are we missing? It's also a great communication tool for the different divisions within the company to hear about it. I've learned a great mentoring tool, because then the young talent gets to hear about. And by the way, it's also a way to focus, because otherwise you're all moving so fast. But if you slow down and you actually talk about it, you'll catch things. So it has a lot of utility. It's not meant to be just some perfunctory, like, check the box thing and then on, like, developments, for example. So We. We really will do everything from development to iOS and like everything in between. You can imagine within industrial. And maybe our favorite is one that has a little bit of everything on it, because then, like, we think we can price it better.
- [40:45]
Co-host or Interviewer
Explain that. What do you mean, everything on it?
- [40:47]
Scott Arnoldy
Just like an industrial warehouse building. An iOS building. Yeah. And then, I don't know, maybe a new freight facility. Yeah. That you're like, well, I don't. That's kind of like the original Dallas deals. Like. Well, that doesn't fit anyone's box. Like, perfect. That's ours. We love that. And so, yeah, I mean, we. That's the. I'd say the process, it's relatively typical probably, in that. From that standpoint, I think what is unique. Do you guys use Monday, by the way?
- [41:19]
Co-host or Interviewer
No, we used fos. We had our own software.
- [41:21]
Scott Arnoldy
You had your own software. So we've got Monday. But it's highly customizable. And so we've built up our whole system through Monday.
- [41:30]
Co-host or Interviewer
Great.
- [41:30]
Scott Arnoldy
And I should show you to you at one point, but it's essentially become a way to do live analytics, deal tracking, deal sourcing. It's like our scorecard. How much are we looking at? So I looked at it on the way I was like, this year I think we'll look at probably around 1,000 opportunities. That's across both. And I think we'll end up doing 20, 15 to 20, depending on how many we get close. And then we could show you. And the cool part is where we're using. You're probably like 6,000 times smarter than me on AI. But we're using it to try and really replace and supplement the front end of the process, because we want the analytics that we're seeing to be based on our data. And so that means you got to free up a lot of bandwidth for plugging in models. You got to also have the principal and partner's jobs. They got to know rents, they got another market, they got to be deep. And so we want to be able to underwrite stuff so that when we look at it, we say, this is our assessment of the value and this is what the market's telling us we do. And then we try to get together quarterly as a team and talk about that. What is it saying? What is it doing to it? What is it showing us, et cetera.
- [42:51]
Co-host or Interviewer
You mentioned you're going to hire a capital markets guy, and I think probably for other industries, but I know in real estate, I'm going to ask this question because I think everybody, if I'm thinking what you're going to tell me is true. This is almost not a unicorn, but it's like I'm assuming this person's helping source equity, source debt. Is that correct?
- [43:09]
Scott Arnoldy
Yeah.
- [43:10]
Co-host or Interviewer
So how will they, will they work on the front end of the deal? Hey, deal is starting to emerge as something we want to do and they're immediately hitting the tables and figuring out if there's equity and debt for it.
- [43:22]
Scott Arnoldy
Yeah, it's close to a unicorn for sure. It's certainly.
- [43:30]
Co-host or Interviewer
I say unicorn, not to say they won't be able to do the job because they're going to come with lots of relationships. But there's one thing that I learned along the way, and maybe you feel this, nobody can ever replace Scott. You are going to be at that table making. No matter how much I tried to be like, the company's worthy of the equity or the debt, most big partners are still like, well, tell me what you think.
- [43:55]
Scott Arnoldy
Yeah, I mean, I think you can find examples of that not being the case as you get bigger. As you get bigger.
- [44:03]
Co-host or Interviewer
Not at all. Maybe you have to.
- [44:04]
Scott Arnoldy
I think that that is, it's certainly an inflection point for sure, but like, you have to prove that you've built it well enough to I think, be able to source and execute through that. My number one motto though, from the get go has been if you focus on finding good opportunities, the capital shouldn't be that difficult. I think what our biggest problem now is doing it efficiently. And that's a me problem, by the way, because if I'm the holdup, that's a big problem. Yeah. And so that to me is the more important part is like, can you show essentially the capital why it's good? And so that has come back to like, the system we're building, the process, we're focused on being very diligent about what exactly the expectation is that I would do in the market, you know, how I would show it, you know, the story you're trying to tell, how do you tell it? And so that's what you're saying is the crux of it by far. But that is the challenge. At the same time, I for sure think we can be doing it in a way that when the capital is called for one, we want our reputation to be like, we're not going to call five times a month, we're going to call twice a quarter. Because if we're filtering that on a, on that level, at that level of discipline, inherently it shouldn't be that frequent because you're Trying to outperform the market. You can't then go buy the market. And so we are very disciplined on how we're trying to define what is a good opportunity. If you define it in a way that is clear, then the capital should understand it because you've laid it out for them. That's always been kind of how I've done it. And then it comes down to how well can you tell the story and show that. And so, yeah, I don't know that I think you're right. And it's sometimes, I mean, you'll probably relate to this. Each time you're growing, you're doing a little bit less of what you used to do. You give up some piece of the things that you used to do. And so right now I'm at the model, at the mode of like, which piece am I going to give up? And it's kind of like I enjoy all of it, but how can I make sure we can not make me the bottleneck of the problem? And so that'll be the challenge.
- [46:23]
Co-host or Interviewer
It doesn't have to be a long answer unless you want it to be. How important is storytelling? So if I have the same model in the same deal and you have the model in the same deal and we're both going to the same group, how much would you weight the ability to articulate that? Because I think that's something a lot of people miss. They think, well, the numbers are the numbers. It's great. And it's like, yeah, that might just be half of the mountain you're about to climb. You now have to convince people of those.
- [46:49]
Scott Arnoldy
Yeah. I mean, what threw me off on your question is if we both. If you presume there's like one person that isn't good at articulating it but has a good deal.
- [46:57]
Co-host or Interviewer
Yeah.
- [46:58]
Scott Arnoldy
And then the next person has a very good articulation of the same deal. Yeah. In that scenario, you'd have to think the guy with the good articulation is going to win out.
- [47:08]
Co-host or Interviewer
Do you think you could even have a marginally worse deal still? Good deal, but marginally worse and exceptional storytelling skills and get it done, you know, Maybe.
- [47:19]
Scott Arnoldy
Probably. I mean, I think there's a lot of examples in history of that being the case. We work. Wework. I mean, there's too many Theranos. We work. I mean, any kind of super charismatic storyteller has proven their ability to use that in not so productive ways. And so I do think at the end of the day, it's marketing. Right. By the way, the Biggest capital sources. Maybe not. I shouldn't go. Like, maybe not the sources, but if you think of a. I don't care if it's Brookfield or Blackstone, they're all marketing. They have to tell a story to their capital.
- [48:04]
Co-host or Interviewer
Sometimes they're telling a story amongst their teams. Hey, team, you should buy this deal from our other team.
- [48:08]
Scott Arnoldy
Yeah, exactly. Is this an infrastructure deal or a logistics deal? We're not sure. Yeah, it's a good point. But yeah, I think marketing is a big piece of everything.
- [48:18]
Co-host or Interviewer
You're not going to go to close funds. Is that still. We're never going to be that. Or is it just not now? Or have you put thought into it?
- [48:25]
Scott Arnoldy
No immediate plan to do that. I think it's going to be direct output of whether or not we. Like the problem I was just describing. I think it'll be. It's like if we can continue to do it the way we've always done it, that we would. We would like to do well, because.
- [48:43]
Co-host or Interviewer
On most of your development deals, you have the time to go source the equity and the debt.
- [48:48]
Scott Arnoldy
Yeah.
- [48:48]
Co-host or Interviewer
You got more time if you're in a bidded process.
- [48:51]
Scott Arnoldy
It's tough.
- [48:52]
Co-host or Interviewer
It's tough. That's. And especially in a market like right now.
- [48:55]
Scott Arnoldy
Yeah.
- [48:56]
Co-host or Interviewer
Okay. I do want to talk about iOS for a little bit because you already said it, like, most people know us for iOS, but that's because every time you open LinkedIn, Triton's bought another iOS property.
- [49:05]
Scott Arnoldy
Although maybe not anymore. I think there's early days that was the case.
- [49:10]
Co-host or Interviewer
There's a lot of new entrants. I wouldn't say it was my biggest regret, but like you, we saw it so early. When we were first starting, it was called yard. It was not called iOS yet.
- [49:22]
Scott Arnoldy
Yeah, it was just yard. Yeah.
- [49:24]
Co-host or Interviewer
And then we started hearing about it and I don't think we dismissed it. I think we were just so busy doing what we were doing, we just were like, let's just stick to what we know.
- [49:34]
Scott Arnoldy
Which, by the way, is a direct contrary to focus.
- [49:38]
Co-host or Interviewer
Correct.
- [49:39]
Scott Arnoldy
You know what I mean? You were focused and you would allege, well, I missed something.
- [49:42]
Co-host or Interviewer
I missed something.
- [49:43]
Scott Arnoldy
And so that's the hardest part about my earlier comments about focus is like, well, when do you. For sure, when do you open your eyes?
- [49:49]
Co-host or Interviewer
Because the answer is there is a time. But then there's also the flip side of that. Like, when I hear a lot of my friends, business problems, I immediately I'm like, yeah, it's just a lack of focus.
- [49:59]
Scott Arnoldy
Yeah.
- [49:59]
Co-host or Interviewer
Like so many business Problems are tied back to. You're just not focused enough.
- [50:04]
Scott Arnoldy
Yeah.
- [50:05]
Co-host or Interviewer
And it's the hardest thing for entrepreneurs to do. And it gets harder the more successful you are. More just, maybe just like an update on iOS.
- [50:14]
Podcast Host or Narrator
So it's the cat's out of the.
- [50:15]
Co-host or Interviewer
Bag, everybody wants it thesis is like, you can't make more of it. Nobody's zoning iOS sites anymore. Is there like a ton of Runway left? Is there tons of these sites still out there?
- [50:28]
Scott Arnoldy
I mean, did you see that? I think New York Times. Yeah, it was a New York Times article. Yeah, they just put out an article on iOS. Now, oddly, it was entitled, like, you know, data. It was like a tie to data centers. And that. That, that creates iOS demand, which I can, on the surface of it, get. But I don't think that's the macro thesis of iOS.
- [50:52]
Co-host or Interviewer
That sounds like a New York Times, right?
- [50:53]
Scott Arnoldy
Yeah. And it had a stat of. I think it was 4.8 billion of capital has gone into iOS in the last. I think it was like five years. And on one hand I'm like, God, that's a staggering amount. On the other hand, you could probably, like, if you compare that to like industrial or. It's a tiny amount. And so I still think it's a much smaller piece of the ecosystem because the asset purchases are just small. It's like 8 to 10 million bucks. Every year we've done it, we look at total volume divided by number of transactions, and it's somewhere between 8 to 10 million.
- [51:37]
Co-host or Interviewer
I'm not saying you have to give up your secret sauce on the podcast, but, like, what do you know that others don't? Like what makes a good. Like, when I look at them, like pictures on a screen, it's like, oh, look, it's more land with a tiny little building in the corner. Maybe it could be paved, got some fence. Seems like it's close to some stuff. Like, what are the. What makes a great site versus a good site? Maybe.
- [52:01]
Scott Arnoldy
I mean, let me flip it on. How would you answer that for traditional industrial building that you were buying?
- [52:06]
Co-host or Interviewer
Functional suite sizes.
- [52:07]
Scott Arnoldy
Yep.
- [52:08]
Co-host or Interviewer
In good locations. Good locations. Being around highway systems, rail systems. In our case, close to rooftops. Better just for what we were buying. For smaller, shallow, larger pieces of land and access. Better, good parts of town and then all the normal things. Again, depending on the deal functionality of building, you know, how much deferred capex and maintenance.
- [52:39]
Scott Arnoldy
Yeah. So I'd say it's like almost every word you used would be now maybe with the exception of close to rooftops, that's probably when you don't want an iOS because it's like a bit of an oxymoron. You don't want it in a neighborhood. You may want it near a neighborhood, and depending on what type of iOS you're buying.
- [52:56]
Co-host or Interviewer
But so it's the same thing.
- [52:58]
Scott Arnoldy
It's essentially going to be all around function and the secret sauce of understanding it. I'd say it's certainly not that complicated.
- [53:09]
Co-host or Interviewer
Does it lease quick? Is it the same leasing brokers as a shallow bay, as leasing an iOS, or they're now iOS leasing brokers that have been trained just to do that?
- [53:18]
Scott Arnoldy
No, no. I mean, historically, I think it was that.
- [53:21]
Co-host or Interviewer
Yeah.
- [53:22]
Scott Arnoldy
But I'd say it was just like a little bit more of your scrappier street brokers. And then in time, as it's become so institutional.
- [53:28]
Co-host or Interviewer
Right.
- [53:29]
Scott Arnoldy
Just at this real estate event, my guy, that's CB broker, tenant rep, he also is now doing iOS. And so I think it's just like another way for them to throttle into a. It's not that, you know, do you remember, like, when you first started in real estate? Or like when I first started at Arkon, like all these terms and things that are thrown around, you're like, oh, my God, like, how am I ever. This is like all these acronyms. And I feel like that's how iOS felt early on. You're like, I don't know, how do we measure it? Is it usable? Do they need that? Do they not need that? And then over time, you just like, oh, yeah, I know a duck when I see it. And so it's the exact same stuff, function and layout, dimensions. Does it work for the tenant base? And so it's like those commonalities are across. Probably all industrial zoning is certainly where you spend a good chunk of time, because.
- [54:26]
Co-host or Interviewer
Okay, let me ask this then. When you buy a site, do you know if it's going to be like somebody storing supply on site versus somebody storing trucks? Like, could it be multidimensional or do you have a pretty good idea? Because when I think, like those are two totally different types of tenants, somebody's storing their.
- [54:43]
Scott Arnoldy
No, I'd say it's most of the time it could be either.
- [54:46]
Co-host or Interviewer
It can always be either. Not always.
- [54:49]
Scott Arnoldy
Not always, but most of the time. Yeah, most of the time it can be either. I mean, like every type of real estate, you want to cater to the widest pool of renters possible. And so our favorite iOS is going to be the ones that we think work for almost anyone. So that's That's. But like, I don't think there's, you know, anyone that tells you like there's some secret sauce to iOS. It's like it's a pretty. If there's anything secret, just that you're trying to get your hands on better data, better comps, better leasing information. And that in time, as it continues to mature, will be no different than some class B building. And then it probably comes around sourcing channels and understanding it and kicking it up and. Or maybe just trying to lean into why it's good. Which is in our opinion almost always replacement cost is going to dictate that answer. And I don't like the what inning are we in question? Because I'm always wrong.
- [55:51]
Co-host or Interviewer
But like what inning?
- [55:52]
Scott Arnoldy
Yeah, exactly. I think it seems like it certainly has staying power. Sometimes I feel like the old guy that's like, oh, I remember when we used to buy these things. And then you're just like, oh, okay, the new entrance will just run by me. Right. And so I'm trying to get more grounded to what do we really like? What is our long term belief? What are our tenants saying? We have a good enough portfolio where we can talk to the tenants and really understand where we're seeing leasing velocity. And then. Yeah. Making sure that what you're buying is good, high quality iOS because.
- [56:33]
Co-host or Interviewer
Okay, so what's bad quality iOS then.
- [56:35]
Scott Arnoldy
Just what you would say. Yeah, I mean, I'm not. Certainly not. But you don't want a building in some weird shape. Right. Same as industrial.
- [56:45]
Co-host or Interviewer
But I thought the buildings don't even really matter. No, they do because it's just like a little office.
- [56:50]
Scott Arnoldy
Yeah. It's a tiny. But again like an industrial building. But a lot of the times, think about it, they're trying to service and maintain equipment. Yeah. Trucks, construction equipment. Let's say one little area to do that. That's pretty much the premise of it. And then beyond that, it's shape of site configurations, rear easements. So none of that. It's like enough people are in the space that everyone's asking those same questions. I think we're starting to see people make bets on what I would say are manufacturing facilities.
- [57:26]
Co-host or Interviewer
I'm starting to hear that too. We want to buy manufacturing.
- [57:29]
Scott Arnoldy
Yeah. In Houston it's gotten big. We saw a purchase in Norfolk and that. I'm like a little.
- [57:37]
Co-host or Interviewer
I don't know about that thesis being the tenant sticky, I guess.
- [57:41]
Scott Arnoldy
Or I think it's probably that slash onshoring of manufacturing, the whole tariff, like everything's going to come Back, we're going to start building. I will say there was a purchase done in Houston. I think they've preleased like 70 or 80% of it in contract, period. So I'm like, I could be dead wrong, but seems like those improvements are a little bit more bespoke and purpose built. And so we haven't done that. If anything, we would probably try to play into it in a more like iOS fashion, like the data center analogy. Like we'll be the yards next to the construction to like play into it.
- [58:16]
Co-host or Interviewer
All right, maybe we'll just kind of bring it home on. I'll just lob a general question. How are you feeling about the real estate market right now?
- [58:25]
Scott Arnoldy
Yeah, great question. I mean, there's no doubt, start and go for, yeah, we're in a down cycle. There's just no other way to say it. Right. I mean, prices have been correcting. It doesn't feel like the GFC did, but the GFC felt quicker. Like it felt like we came out of it faster. And this has just felt more uncertain for longer. I never would have thought you could have an inverted yield curve for what was that, like two years plus. And so my big thing I'd tell everyone is this is probably what it felt like for decades to some people when capital wasn't just awash in the system and interest rates were zero. It's like you had to go work for it and it was a little harder and you had to really find something interesting and you couldn't just, you know, rely on, you know, the, come on, interest rates or rent growth or. And so, yeah, I mean, my big thing is like, you're going to always. I mean, when we, when I left Stockbridge, on the face of it, it was like the worst timing ever because Houston was like, literally the PwC is like top market to invest in. And then the next year, oil went to light 30 and all the capital flooded out of Houston. And Will Hedges and I were like, he had just left dct. He was like one of the employee number three. We're like, what are we going to do? I was like, this is terrible. And I was like, there's always opportunity in any market, especially if you're able to play the spectrum. Now, if you're maybe just a merchant builder, that might get tough for a bit and you got to wait for it to come back. But that's kind of why we're trying to build it that way is like, find the opportunity. And so that's just the big thing. I harp on I was like, there's always something interesting to look at to do. It just might be a little harder to get it done. So, yeah, capital's harder, deal flow is harder. I mean, especially in industrial, things are more like almost everything seems marketed these days. There's less off market. And so you just have to constantly be pivoting.
- [60:31]
Co-host or Interviewer
And why have you never done land?
- [60:35]
Scott Arnoldy
I've just always viewed land as the tip of the spear, of the repricing.
- [60:40]
Co-host or Interviewer
Okay.
- [60:41]
Scott Arnoldy
You know, like if you now, if you have land unlevered and you have time, yeah, that might be different. But if you're trying to transact on land in some reasonable time period, the second there's a repricing, the only thing that in theory can move in your pro forma, his land price costs are pretty fixed. And so I was like, well, by the way, you get the other side of that. When times are good, your land can double, triple in price quickly. But it's just always felt like risk adjust. And then probably there's some level of like, I am not that well trained in land investments. Some guys that do it, I feel like they do very well. Maybe that's probably the better answer that I come up in that world. So it's probably seemed riskier than it is.
- [61:33]
Co-host or Interviewer
So if we were sitting here 12 months from now, and you're not a fortune teller, have we bottomed and come out or are we going to keep trading sideways?
- [61:45]
Scott Arnoldy
Yeah, I mean, obviously I think about this all the time, but multiple times a day. Yeah. If anything, I think we're trying to be agnostic. My general sense is it kind of feels soft. Labor market, consumer spending. But every time you say that, there's some other stat that tells you why things are so healthy. And then it's like, well, if things got soft, but interest rates do come down and the yield curve kind of calms down. You get some real tight on the short end of the curve, or relief, I guess, on the short end of the curve, then I'd say, well, that would help quite a bit. Then you'd get some, I think, more certain. I think the hardest thing is Q1, if you remember, felt all right. And it was like liberation Day. Here comes uncertainty. And then it was like, we're off for 90 days. And then today I hear, I read on the airplane, you know, China's not buying soybeans anymore, which is like our number one agriculture, export. Okay, that'll be okay. We'll just. And so there's just a lot of like, I think every business I Talk to like all of my friends back home. It's like it's hard to make long term investment decisions in an environment of uncertainty. But at the same time we all have to make some investment decisions because you know it's going to be like this for a bit. So I don't have a crystal ball. I'd say we try to say let's pick pockets that we think are really healthy in this environment. Let's buy basis that we think is well protected or maybe like Walt or lease term that can weather a downturn. But there's like I could probably make a case for either a bull case for a year from now. Interest rates are lower, AI has produced massive GDP growth or it's like the consumer is hurting and then we got stagflation because there's tariffs and inflation. I don't know, what would you say? By the way?
- [63:48]
Co-host or Interviewer
I think I echo a lot of what you said. I think the consumer, you just look at the prices of things right now and you're just kind of like how do most people afford to do much right now? I mean stuff's expensive. We got two sandwiches the other day at Great Outdoors.
- [64:06]
Scott Arnoldy
It was 40 bucks. Hey, Great Outdoors.
- [64:09]
Co-host or Interviewer
Great Outdoors. No, I got double meat. But that's it. That's it. That was the only upgrade.
- [64:15]
Scott Arnoldy
That's crazy.
- [64:16]
Co-host or Interviewer
You know, I Definitely agree on Q1 again, our little neck of the woods is just one thing. I think shallow bay has continued to kind of be a bright spot even though for sure there's been repricing and for sure there's been challenges. You know, I tell people it's like it's not just interest rates. Opex and Capex and maintenance are up, insurance is doubled, property taxes are up. You're getting squeezed from every which way right now. And so a lot of people say well there's a great rent growth story coming. And I'm like maybe the rents have been going up for quite a damn while. And if we're already saying that there's not much more room to push on pricing, not saying it can't happen, but I don't think it's the big bet. Certainly wouldn't be putting in 5, 7, 7 or anything close to that, which is kind of what you need.
- [65:04]
Scott Arnoldy
It's kind what you need if, if.
- [65:06]
Co-host or Interviewer
Everything else is going to stay the same.
- [65:08]
Scott Arnoldy
Which by the way the, that that on housing is even crazier.
- [65:11]
Co-host or Interviewer
You know, I think, I think interest rates coming down helps the 10 years below four today, which it's better than not But I think it's been kind of priced into our system.
- [65:19]
Scott Arnoldy
Yeah, totally.
- [65:20]
Co-host or Interviewer
Like, I think you would say you're not jumping off the sidelines right now because it went under four. It might make it easier to refinance some stuff you have or.
- [65:27]
Scott Arnoldy
Right.
- [65:27]
Co-host or Interviewer
But I don't think it necessarily just full throttle down, even with a rate cut probably coming. I think the wild card is trump right now. Like, he's a very pro bullish pro business, pro America. Like he we're heading into the midterms in two years. And not that he's, I don't think he's necessarily playing games around the election. I think he wants to get elected, but his mandate is to grow the hell out of this economy. Even with the bill that they just passed, you know, Doge did what it did, but it wasn't what we promised. So the new.
- [65:59]
Scott Arnoldy
Yeah, I mean, it's funny the thing I was just at Perot was speaking and he on one hand, he's the Chairman of the U.S. chamber of Commerce and he said small business is really hurting.
- [66:10]
Co-host or Interviewer
Hurting.
- [66:11]
Scott Arnoldy
They're getting clobbered by tariffs and they can't operate. I mean, for really small business. The example he gave was a wedding dressmaker in Florida. All their supplies are double and so they need some Runway. And then five minutes later he's talking about how Nvidia and this rare earth metals company are all expanding like crazy at Alliance. And so it's so hard to know what to do with that. Okay, on one hand you're telling me it's really bad for small business. On the other hand you're telling me about all this investment that's going to be made in America. And so I'm like, it's just a tough one to see your way through.
- [67:00]
Co-host or Interviewer
And look, I haven't been around long enough. I'm not even smart enough to say this because everybody says it's different this time. It's like the cardinal sin to say that. But even you saying, I never thought the yield curve could be inverted for two years. Stock market go up, everything else fluttering. It can't last this way forever. Something's got to give.
- [67:21]
Scott Arnoldy
Something's got to give.
- [67:21]
Co-host or Interviewer
And it's probably the thing that nobody wants to to talk about, which is values and pricing at some point, not necessarily in real estate, stock market, it's.
- [67:28]
Scott Arnoldy
Like the book you gave Psychology of Money for sure. That's the punchline at the end. Right?
- [67:34]
Co-host or Interviewer
So that's a really good question. I've been wrong three years in a row. So I'LL be wrong again and say, I think we'll be. I'll define success in real estate as a better cadence of transacting. I think we're better off a year from now than we are today in real estate. Yes. Because all that we said, plus 26, 27, 28 are when notes are starting to come due. So you're either going to be looking at, do I want to refinance this if my team's out of the promote, do I want to refinance it, hold it for five more years knowing that we're not going to make anything?
- [68:17]
Scott Arnoldy
I mean, to your point when you said that just maybe on our multifamily side, we're starting to see some very interesting opportunities because it's time, there's real.
- [68:28]
Co-host or Interviewer
People have to make a decision, there's no more syndicator.
- [68:30]
Scott Arnoldy
Markets, as you said earlier, is kind of dead. And so that's where we're actually starting to see some really compelling opportunities. We're under contract. It's multi family right now. But it's also, I don't know that I've ever seen the rent versus own disparity this wide.
- [68:47]
Co-host or Interviewer
Remember?
- [68:49]
Scott Arnoldy
Well, at least when I was at Stockbridge, you'd always be doing this analysis on how much the shelter rent was compared to owning because you knew that they would empty the apartments and go buy.
- [68:57]
Co-host or Interviewer
Well, it's like TLDR, it's better to rent.
- [69:00]
Scott Arnoldy
Yeah. But now it's 40% better to rent, which by the way, means you need 25, 30% rent growth to build. Right. And so it's like on one hand you could say that's a big bull case for acquisitions and rent growth. But then it's like, well, how do you have rent growth if things feel soft? And I still think in my mind it's a good time to be in a hard asset class. Yeah, that's like the other thing I always say is like, well, I'm glad I don't have too much debt and not a hard asset because at least I can. If there is an inflationary pressure, either because of lack of supply or tariffs, then I feel good about being in real estate. And so it's like to me, there's like the decision tree I still anchor, like, okay. I still think it's a great asset class for this environment. Just finding the good picks throughout it. We should have just done data centers at the end of the day.
- [69:56]
Co-host or Interviewer
All right, in a year, I'll take a clip of our last bit of the conversation and I'll send it to each other.
- [70:01]
Scott Arnoldy
We'll see how we ended up. I love it.
- [70:03]
Co-host or Interviewer
Scott, thanks for joining me today.
- [70:04]
Scott Arnoldy
Appreciate it. Thanks for having me.
- [70:06]
Co-host or Interviewer
Thank you.